On the first day of February, the Federal Circuit rejected Impax's efforts to get out from under a preliminary injunction in a case captioned In re Cyclobenzaprine Hydrochloride Extended-Release Capsule Patent Litigation. The opinion wasn't released until February 14, 2013, however, because it contained confidential information that needed to be redacted. The Federal Circuit also interpreted the settlement agreement between Impax and Cephalon (the patent holder), confirming the lower court's decision that the ability of Impax to begin selling generic AMRIX® under the agreement had not been triggered. As a result, the discussion regarding the preliminary injunction was somewhat irrelevant, because Impax was otherwise precluded from marketing the drug. The decision in this Eurand, Inc. v. Impax Labs., Inc. case is somewhat limited to the facts, because the injunction and settlement agreement discussed by the Court were specific to this case. Nevertheless, a review of the Court's reasoning and analysis is relevant because other parties involved in Hatch-Waxman litigation may find themselves in similar situations.

This substantive issues related to validity for this case were discussed in detail in a Federal Circuit opinion of the same name that was handed down last year, as reported here. The drug that was at issue in all of these cases was an extended-release formation of the muscle relaxant cyclobenzaprine hydrochloride, manufactured and sold under the tradename AMRIX® by Cephalon. Shortly after receiving the NDA for this formation, Mylan Inc. and Mylan Pharmaceuticals, Inc. (collectively "Mylan") filed an ANDA to market a generic version of the drug, followed shortly by several other generic manufactures, including Impax. The Federal Circuit ultimately found that the patents-at-issue in the case were valid and infringed by the various parties.

Nevertheless, Cephalon and Impax settled their dispute on the last day of trial. In the settlement agreement, Cephalon granted Impax a non-exclusive license to the patents-in-suit, the timing of which was controlled by five different potential triggering events, the first (and latest) of which was the date one year prior to the expiration of one of the patents in suit. The other events were tied to "Third-Party" generic manufacturers entering the market, whether by authorization, by launching "at risk," or by obtaining a final non-appealable judgment of non-infringement, invalidity, or unenforceability. The parties also entered a "Transfer Price Agreement" ("TPA"), by which Impax agreed to market and sell Cephalon's generic AMRIX®, and Cephalon began supplying its generic product to Impax.

Cephalon also entered a "Sales Agent Agreement" with another generic manufacturer, Watson. However, under this agreement, Watson was only given authority to solicit orders for Cephalon. In fact, Cephalon maintained title of the drugs at all times until the drugs were transferred to the final customer. Watson was foreclosed under the agreement to market or sell any other version of the drug.

After the bench trial, on May 12, 2011, the District Court issued its decision, finding the asserted claim invalid as obvious. Mylan launched "at-risk" the next day. In response, Cephalon instructed Watson to begin soliciting orders. On May 24, 2011, the District Court enjoined both parties, along with all persons "acting in active concert or participation" with them, from selling their respective generic versions of the drug, in order to maintain the status quo pending appeal. On November 7, 2011, Mylan asked the lower court to confirm that the injunction covered parties in privity with Cephalon, because Mylan had become aware that other generic manufacturers were planning to launch at the end of the 180-day marketing exclusivity period. As a result, the District Court clarified its injunction by explicitly referencing that Impax was subject to the injunction. Incidentally, because the lower court issued its May 2011 injunction after Mylan launched, Mylan lost almost all of its exclusivity period. This may have been a more contentious point, but for the fact that the Federal Circuit overturned the lower court's validity decision.

Impax moved to modify both the May and November 2011, injunctions, and to enforce the settlement agreement by clarifying that Watson's launch was a triggering event for its own ability to enter the market. The lower court confirmed that the May 24 injunction, as clarified by the November 8 order, was still in effect and that it prohibited Impax from selling any generic product. It also concluded that Cephalon's use of Watson as a sales agent did not trigger Impax's right to begin selling its supply of Cephalon's drugs under the settlement agreement. Impax appealed.

No Jurisdiction to Review Injunction

The Federal Circuit determined that Impax was subject to the May 2011 injunction, and that because Impax did not object to that injunction within the requisite 30 days, it did not have jurisdiction to review the propriety of the order. The May 24, 2011 injunction prevented Mylan, Cephalon, and all persons "acting in active concert or participation" with these parties, from selling a generic version of AMRIX®. Impax had argued that it was not subject to this injunction because it was not a party to the action when the District Court issued the injunction. The Federal Circuit pointed out, however, that Impax was a party that was "acting in active concert or participation" with Cephalon. Impax derived its right to sell generic AMRIX® from the Cephalon-Impax Agreement, and it could have only entered the market because of the settlement agreement. Therefore, there was privity of contract between Impax and Cephalon, because a settlement agreement is akin to a contract. Also, if Impax had attempted to sell the authorized generic product pursuant to the TPA, it would have been directly "acting in concert" with Cephalon. As the Court pointed out, any alternative result would have allowed Cephalon to circumvent the injunction by funneling its generic product to Impax.

Impax also contended that the District Court's November 8, 2011 order modified the May 24, 2011 injunction, and its appeal of this modification was timely. However, because Impax was subject to the earlier injunction, the Federal Circuit pointed out that the District Court's clarification made no substantive changes. Therefore, the November 8, 2011 order did not give rise to an independent right to appeal.

In a final attempt to modify the injunction, Impax argued that it timely appealed the District Court's denial of its attempt to prospectively seek modification of the injunction. The Federal Circuit agreed that it would have had jurisdiction over a modification of an injunction, or denial thereof, citing 28 U.S.C. § 1292(a)(1). However, such review would be limited to the propriety of the denial, not the underlying injunction. The Court rejected Impax's assertions that the circumstances had changed since the May 24, 2011 order was issued. First, Impax asserted that it had been just recently added to the injunction, but the Federal Circuit had already addressed this issue. Second, Impax alleged that the injunction needed to be modified because Mylan's exclusivity period had expired. However, the length of this exclusivity period was known at the time of the original injunction, and therefore the predicted end of this period had no bearing on Impax's rights. Finally, Impax argued that its receipt of authorized generic product from Cephalon somehow warranted modification of the injunction. However, the May 24, 2011 order prohibited sale of these products, and Impax had received them months before it sought to modify the order. Therefore, the Court did not consider this to be a "changed circumstance." As a result, the Federal Circuit found no support for a modification of the injunction.

Cephlon's Appointment of Watson as Sale Agent Was Not A Trigger Event Under The Contract

The Federal Circuit also addressed Impax's challenge to the lower court's interpretation of the settlement agreement. On its face, the Federal Circuit's decision should not extend beyond the contract between Cephalon and Impax. However, because Court reasoning is applicable to the interpretation of other settlement agreements, it is worth reviewing. Interestingly, for the present, this aspect of the decision appears to be irrelevant, because according to the District Court's docket, Impax is still subject to the preliminary injunction (and therefore couldn't sell any drugs anyway). In other words, regardless of whether an event had triggered Impax's ability to sell generic AMRIX® under the settlement agreement, Impax was still barred from launching until the District Court lifts the injunction.

The relevant section of the settlement agreement is Section 3.2, in which five different "triggering events" dictate when Impax can enter the generic market. The "trigger" in dispute is the third, which provides that Impax may enter the market on:

[T]he same entry date that any Third Party which is not entitled to First to File Exclusivity is licensed or authorized by [Cephalon] to begin selling Generic Equivalent Product in the Territory.

Impax alleged that Watson was such a "Third Party," but the Court disagreed. A "Third Party" was defined in the agreement as a party that is not Anesta, Eurand, Cephalon, Impax, nor any of their affiliates. As such, Cephalon's entry into the market was not defined to be a triggering event. And, because Watson was no more than a sales agent for Cephalon, Watson was Cephalon based on the agreement.

Important in this determination was the fact that Cephalon was merely using Watson's expertise and distribution channels. Watson had not filed its own ANDA to the product. In fact, Watson was only soliciting orders, and was required to notify potential customers that it was only Cephalon's sales agent. Moreover, Cephalon retained the right to set price floors, and retained title until the drugs were transferred to the customer. Because Watson never obtained title to the product, it could not "sell" the generic drugs within the meaning of § 3.2(c). The Court pointed out that if Watson was, in fact, characterized as a "Third Party," it would have meant that Cephalon would have needed to operate the entire production and distribution chain of its own generic product to avoid triggering Impax's ability to launch. Otherwise, any party that would have aided Cephalon would have been considered a "Third Party." The Court pointed out that this was a nonsensical result.

The Federal Circuit concluded by noting that this provision in the settlement agreement was meant to act as a "most favored nation" clause. In other words, it was protection for Impax from losing market share from other generic manufacturer, whether they were authorized or whether they launched at risk. This should serve as a warning to any generic company (or branded pharmaceutical company for that matter) to make sure any equivalent situations are properly addressed in any settlement agreements -- otherwise a similar outcome is almost guaranteed.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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